Idaho Department of Finance | Idaho Business Review

A word with Patti Perkins, director of the Idaho Department of Finance

photo of patti perkins — Patti Perkins was named director of the Idaho Department of Finance, which governs state-chartered banks and credit unions, in December. Photo by Sharon Fisher

Patti Perkins has had a varied career that includes leadership roles in banking, human resources and now government as the new director of the Idaho Department of Finance.

Perkins, who most recently ran her own HR consulting company, took on the role at the Department of Finance on Jan. 13, replacing acting director Mary Hughes, who in turn had replaced former director Gavin Gee, who retired in January 2019.

The appointment by Gov. Brad Little was a bit of a change of pace for Perkins, who had also previously served as director of human resources for the City of Meridian, leader of the Workplace Relations & Practices team at T-Mobile, senior vice president at KeyBank and vice president at Bank of America.

The Idaho Business Review recently met with Perkins to talk about her plans for the department, which, among other things, regulates state-chartered banks and credit unions in the state of Idaho.

This transcript has been edited for length and clarity.

How did you come to be here?

I was very happily doing human resources consulting with my company, Calyx-Weaver & Associates, which is truly what I thought would continue to do through retirement. I had coffee with a former banking friend of mine who asked me if I had ever thought of being the director of finance. He was part of the search committee, and they have been trying to fill this position for a year. They’d had someone identified who didn’t end up relocating. Then they just let it sit for a little while, but they were feeling like they needed to get going on this again. I hadn’t really considered it. I knew it was open, but I hadn’t paid attention to it. The more he and I talked, and he sent me the job description, the more intrigued I became and I thought, I’m going to see what this is about.

I said sure, I will talk with people, and they started to have me speak with industry groups, for both the banks and the credit unions. Then there was some period of time where they said they would like to have me speak to the governor. It’s governor-appointed, and he’s technically my boss. That took a little while to schedule. I had that interview with him and his team. That would have been in November or early December. Then the next phone call I got, they offered me the position. I was incredibly honored. Any way this worked out, it would be a win. I was so honored so have been considered at all.

It was really flattering. I’m not a typical candidate for this role. I left banking in 2004. My last three or so years at KeyBank, I was running the retail bank in the state. There was a leadership change in the East, and it felt like the right time to move on. T-Mobile came into the area at the time, and I worked there just shy of 10 years. Then I left them and went to the city of Meridian for two years as their HR director. I purchased Calyx-Weaver, which was Weaver & Associates at the time, in January 2016.

What are you going to do?

The department has a good reputation with the folks that we regulate in the state, by and large. It’s not that we’re perfect, but people feel like we’ll work with them, that we’re fair. We try to approach regulation not with a heavy hand, but more of a, ‘Let’s help you get to the right place.’ It’s a cooperative relationship. I want to continue that. I want to be that type of regulator that is fair and looking for the way to modernize the regulations and the rules that are associated with bank regulation. We will continue doing that. We see the role as being both on the regulation side but also promoting the financial services business in the state. Competition is good, and giving consumers a choice is good. Om the regulation side, we make sure financial services are safe and sound and fair to the consumer. It’s dual-purpose.

A recent study found that Boise ranked third in the country by percentage of closed bank branches. What causes that?

It depends on what side of the fence you sit on. I would love to see us grow more community banks. I think it’s a function of community banks that they take a lot of capital. There’s a good reason — it’s part of the soundness and safety part. They become targets for other institutions. It’s sometimes easier and cheaper to buy a small bank than build a bunch of branches. One of the things we’ve seen is a number of the community banks give way or be purchased by out-of-state banks. First Interstate, that’s one of them. Before that, it was Bank of the Cascades. They’re Oregon. It is the way it is. They’re still here, and we’re glad they’re part of the financial services landscape. The consumer still has choices. But we’re Idaho, and we want Idaho-based banks.

There are some that have gone away, but others that have remained. My background is in commercial banking. When you look to acquire a bank, part of what you looked at was duplication of services within a geographic range. There may be some of that. Two existing entities with branches will create some branch closure by virtue of you overbanking your geography. I had heard that US Bank was shutting down some of the small branches in places. That is hard on a community. That’s part of our mission, to make sure the citizens of Idaho have places to do business. Rural areas may have opportunities through less traditional means that may not be what they need.

What is the role of credit unions?

Credit unions seem to be pretty healthy in the state. There’s one, in particular, that’s very large and doing very well. I am a proponent of both credit unions and banks. There’s some tension between the two types of organizations, primarily because of the taxing differences and the perception that credit unions can do everything banks can do. There’s a place for both, because they do have different roles. Although some consumers would be the same, and the market would overlap, there are things banks do that credit unions cannot or don’t do. Competition is good.

How do you feel about taxing credit unions?

Our official position on it is neutral. We support both types of organizations and don’t want to favor one over the other. Our responsibility is to administer the statutes and the rules that we have. It’s not something that we would generate, but we would remain neutral on any legislation.

What are you doing with the Legislature this year?

We presented some changes. A lot of the changes were to comply with the red tape reduction that the Governor has asked. There is a requirement that we be at least at parity with the federal rules and statutes, and some of our citations were wrong over time, so we were trying to clean that up. We will continue to look at our rules and statutes to make sure we’re keeping up with industry. The governor has made that an official part of what we’ll do. We’ve had a number of changes, and all our rules have now gone through review.

Plus you’re moving.

The state bought the HP campus. As those buildings are vacated, we’re moving state individuals and agencies in. We are scheduled at present to move in fiscal 2021, and it’s probably going to be actually in 2021 because we have some projects and some things that require everybody’s participation and attendance at the end of the year. We’re not in a position to move this calendar year; we’re targeting the first part of next year.

I’m kind of excited about it. I’ve been hanging out there for a while. We’re in a space identified for us, which will require some pretty substantial buildout. It’s truly an empty shell. The nature of our work requires that certain of our team have offices. There’s a state standard, and we’ll be following that, but we’ll also go to some ‘open office concept’ kind of thing. We’re just at the beginning of that planning stage.

How will you pay for it?

We’ve been squirreling away some resources for that. There was a JFAC hearing on some money. I think we’re going to be in pretty good shape. We have a unique agency. We’re a dedicated fund agency. Though we have to appropriate to move money, we can fund it ourselves. We have to go through the process of appropriations and have funds earmarked into next year.

How much will it cost?

It’s kind of a moving target right now. It’s going to be a couple of million anyway at least, maybe a little bit more. We’re working with somewhat older numbers. One of the things that impact what it will cost is the building boom going on. We get caught in it just like everybody else does. The people to do it are scarce, and materials keep spiraling up. We don’t have a hard number, but we have a fairly good idea.

It’s an empty shell. Some agencies can keep their costs a little lower by going into a space that fits their business. We’re using historical numbers based on the Tax Commission and the Public Utilities Commission, those who have gone before us. There’s always lighting and computers. That desk is probably 50 years old.

We’re going to repurpose as much as we can. There are cubicles that we have that were old when we moved into this building 15 years ago. You literally can’t get parts. They’re not up to today’s standards in terms of how they’re secured or not secured. We’ll repurpose as many desks as possible because we didn’t do anything to configure this space. We have lots of offices with lots of desks that don’t fit into cubicles. We haven’t laid it all out, but that’s going to impact the costs. And the fact that it’s on a cement slab presents some challenges with how you run your wires and where you can have water for a break room, because we’re responsible for a certain amount of common space as well.

Department of Finance adding deputy director

The Idaho Department of Finance is hiring a deputy director.

The new position was approved by the Idaho Legislature during the 2018 session for fiscal year 2019, which began July 1. The department’s budget passed with little dissent, receiving unanimous votes from the Joint Finance-Appropriations Committee (JFAC) and the Senate, and a 58-5-7 vote from the House with no debate on the appropriation.

Gavin Gee

“For many years, the Department’s increased operating tempo and number of regulated entities has been steadily increasing,” said Gavin Gee, director. “In 1998, we had 62,308 regulated entities; as of this July, we had over 191,000. We looked at operational models of agencies our size in requesting this position. Deputy directors are present at many agencies, so we specifically looked at how agencies near our size use them. The Idaho Department of Insurance was a good benchmark, as they have a deputy director and are similar in size and regulatory function.”

During the budget hearing, Gee said the deputy director could also stand in when the director is out of the state on business or in the hospital. Gee was out of the office for a number of months in 2017 recovering from a serious accident.

The Department of Finance is a dedicated fund agency, as opposed to a general fund agency, meaning its budget comes out of fees it charges rather than from taxpayers. Traditionally, the Legislature doesn’t question dedicated fund agencies about how they spend their money as strongly as they do general fund agencies. In fact, the department reverts some of the fees it collects to the general fund. In the previous year, that amounted to $5.3 million, Keith Bybee, deputy division manager of the budget & policy analysis division of the legislative services office, told JFAC in January. It regulates banks and credit unions, as well as cemeteries, collection agencies, and finance and securities companies.

Interested people can apply through Sept. 17, Gee said. “We hope to review the applications and interview the finalists by the end of September and fill the position shortly thereafter.”

Department of Finance sees more filing activity

The Idaho Department of Finance saw a more than 5 percent increase in business filings, licenses and registrations in 2014, with more than 168,000 filings. The department’s securities bureau reported a record 113,084 securities filings and professionals licensing to do business in Idaho. That paperwork came from people in every U.S. state and 23 other countries.

The number of mortgage loan originator and broker/lender licenses as well as number of regulated consumer lending industries also increased.

The Department of Finance oversees banks, credit unions, mortgage and consumer lending and financial securities industries. The department saw increased use of online filing, with more than 90 percent of licensees and registrants using online tools rather than paper to register with the state.

The department is also in charge of financial fraud investigations. It reported that the dollar amount of fraud has declined from record highs after the Great Recession to approximately $16 million last year. The department started or completed 30 enforcement actions in 2014, up from 23 in 2013, with citizens receiving refunds or restitution worth roughly $4 million.

While the number of people filing to do business in financial services is up, the number of Idaho-based banks and credit unions declined last year. Three Idaho-based banks merged, with Home Federal Bank of Nampa joining Oregon-based Bank of the Cascades, Boise’s Idaho Banking Co. now part of Burley’s D.L. Evans Bank and Panhandle State Bank merged into Washington-based Columbia State Bank. There were four credit unions, lowering the number of Idaho-headquartered credit unions to 41.

Idaho is part of new private placement database

The new electronic filing system should cut down on paperwork for some companies seeking investments. File photo

Idaho has joined the Electronic Filing Depository, a new online database for companies to electronically submit forms for one kind of private equity to raise revenue. The EFD was developed by the North American Securities Administrators Association and is intended to streamline filing requirements, according to the Idaho Department of Finance. The new site could be useful for companies looking to raise money in several states.

The EFD can be used by companies looking to raise money from accredited investors, who tend to be people with high incomes or wealth. The database can be used by issuers who file a Form D for a Regulation D, Rule 506, which is a safe harbor for private offerings. Those forms must be submitted to the Securities and Exchange Commission as well as state regulators like the Idaho Department of Finance.

Before the EFD, filers had to complete paper copies of the forms and mail them in, said Jim Burns, acting bureau chief of securities with the Idaho Department of Finance.

Switching to the electronic model will help companies seeking funding, and will also help the lawyers who handle the filings, said Paul Boyd, a partner in the corporate group at Stoel Rives in Boise. He said regulatory filings are a large part of his work and that mailing them in to every state where companies sought funding was time-consuming, expensive and slow.

“It’s good for investors, the public and issuers, because it’s less expensive, quicker and cuts down on a lot of needless paperwork,” Boyd said.

Thirty-nine states have signed up to participate in the EFD. It’s available for all of Idaho’s neighboring states except Oregon and also isn’t available for some large states nationally, including California and New York. Burns said the database came online in December after testing in November, so it may take some states a while to decide they want to take part.

Burns said that if the system works well, regulators will add other regulatory filings to the EFD.

“This becomes a viable option, perhaps, for different types of offerings,” he said.

While the EFD may provide added convenience to companies, it does have an added cost. Beyond states’ filing fees, there is a $150 fee for each unique filing, which covers initial filings, amendments and renewal filings. Boyd said that added cost is still less than the added time it takes for attorneys to send filings to several states.

Securities regulators warn of new spin on classic scams

Emerging investment schemes have latched on to the latest headlines, featuring scams related to digital currencies and the marijuana industry, say state regulators.

Idaho Department of Finance Acting Securities Bureau Chief Jim Burns says that investors need to be wary of investment schemes that are dressed up around a new or interesting business. Sometimes these investment options are shell companies rebranding themselves to spark interest, Burns said.

“The next iteration may be Ebola vaccine companies,” Burns said.

The Department of Finance and North American Securities Administration Association released a list of the top emerging and persistent threats to investors. The emerging threats included marijuana and digital currencies, such as Bitcoin, as well as unregulated binary options securities and stream-of-income investments. Persistent threats included pyramid and Ponzi schemes, risky oil and gas drilling programs and private placement offerings.

Burns said Idaho regulators haven’t received any complaints of losses on the emerging threats, though the Department of Finance has been in contact with groups looking to raise money though virtual currency mining operations. He said some investors may have had losses on binary options, which can have an all-or-nothing payout based on whether an underlying asset like an individual stock or stock index rises or falls, but may not know if their losses are due to bad trades or fraud.

“Sometimes folks don’t when to contact us, honestly,” Burns said. The Department of Finance said investors can contact the Securities Bureau for information on those registered to sell securities or provide investment advice in Idaho.

Community bankers concerned with regulation, non-bank competitors

Community banks are reporting increased competition from non-bank entities that face different regulations. Photo by Brad Iverson-Long.

In a new report, Idaho community banking leaders say improving economic conditions are helping their business, but increased regulations and competition is making it tough for them to survive. Walmart, financial technology companies like Square and Paypal and credit unions are all challenging Idaho banks.

A report from the Federal Reserve and the Conference of State Bank Supervisors found that community bankers nationwide and in Idaho are concerned especially about new home lending regulations, including qualified mortgages and ability-to-pay standards that need to be met for banks to sell mortgages on the secondary market. Some borrowers aren’t qualifying for loans and banks are having to add more staff to handle regulatory compliance.

Bank of Commerce CEO Tom Romrell, who attended the Fed’s meeting in St. Louis, said compliance requirements have led his bank to go from one compliance staffer before 2008 to four full-time employees now.

“It’s four times the numbers of compliance personnel just to handle and implement new compliance requirements on the bank,” said Romrell. He said smaller banks like his Idaho Falls-based bank lack the economies of scale of larger banks to handle that burden.

“Unintended consequences affected many of the smaller community and regional banks,” he said.

Idaho Department of Finance Director Gavin Gee said adding those compliance employees also prevents banks from serving their clients.

“Almost all the banks have had to add consumer compliance officers, and spend a lot of time doing that rather than going out and generating new business,” he said.

Community banking leaders in the state also said they are facing stiff competition from new and established technology companies, including payment companies like Square and Apple’s newly announced ApplePay system. Gee and Romrell also both brought up Walmart’s new checking account offering.

“To the extent that those systems catch on and become prevalent and circumvent the banking system, that hurts community banks and the traditional banking business model,” Gee said.

Romrell said community banks will compete by working with legislators to alter regulations and by offering superior products and services. He said community bankers also try to be involved in their communities, which can help them attract and keep clients.

“But it’s a tough go, as you look at a fast-changing economy,” Romrell said. However, he said the continuing improvements in Idaho’s economic conditions are helping his bank.

The Fed and CSBS report also included a survey of national bankers on their product offerings and some early effects of the qualified mortgage and ability-to-repay rules. Nearly all respondents said they wouldn’t exit or limit any of their product lines. Around 40 percent said they also wouldn’t offer new products in the next three years, while most of the new offerings revolved around online and mobile banking.

Gee said that while it has been tough for smaller banks to keep up with new technological offerings, he said over time, the price of those technological offerings should decrease. He compared it to the advent of ATMs and tele-banking, which were once prohibitively expensive but are now commonplace.

“As we go forward, community banks should not be placed at a disadvantage,” he said.

The survey found that most banks say less than 10 percent of their mortgages don’t comply with the new standards. Banks that keep their loans in their own portfolio don’t have to follow the qualified mortgage rules. The most common reasons for borrowers being rejected included a high debt-to-income ratio, inability to verify income/assets and weak or nonexistent credit history.

The national survey also found that many banks are looking at mergers and acquisitions. One in five community banks made an offer to acquire another bank, with a similar percentage saying they expect to make or receive a merger offer in the next year.

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